Categories: Business

Hospitality sector welcomes ‘blaze of sunshine’ from chancellor’s VAT cut

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The hospitality sector has greeted chancellor Rishi Sunak’s announcements of a VAT cut for the hospitality sector and a new Eat Out to Help Out scheme as a “blaze of sunshine” after months of closure during the coronavirus pandemic.

Speaking in the Commons today to announce his “mini budget”, Sunak vowed to cut the VAT rate from 20 per cent to five per cent for all hospitality and tourism businesses for the next six months.

Read more: Rishi Sunak Summer Statement LIVE: Chancellor reveals VAT and stamp duty cuts

He also pledged to give everyone in the country a 50 per cent discount on meals eaten out for the month of August, in a new Eat Out to Help Out scheme. The vouchers will be eligible from Monday to Wednesday at every participating UK business, up to a maximum of £10 per head, including children.

The chancellor unveiled the “creative” and “unique” support measures as part of plans to revive the ailing British economy and secure jobs as the UK faces its worst recession on record.

Jane Pendlebury, chief executive of the Hospitality Professionals Association (HOSPA), called the chancellor’s interventions “massive”.

Pendlebury said: “The reduction in VAT is absolutely massive news for the hospitality industry. It’s not often that I can say I’ve felt a rush of emotion following a House of Commons announcement, but today I certainly have — and that’s something that just serves to underline how much of a huge relief the latest measures are.

“The reduction will provide businesses operating on wafer thin margins with some essential breathing space, helping them to recover and rebuild, as well as to retain more jobs.”

The hospitality industry is the third-largest private sector employer in Britain represents around 10 per cent of UK employment.

Sunak vowed that his “£4bn catalyst for the hospitality and tourism sectors” would benefit more than 150,000 businesses and help protect 2.4m jobs in the UK.

She added that the government’s new Eat Out to Help Out vouchers were “yet another much needed and very welcome boost” that will help drive up demand.

The chancellor will give diners a 50 per cent discount on meals up to £10

“All in all then, the chancellor’s announcements today are wonderful news for our industry, and offer not just light at the end of the tunnel but a real blaze of sunshine, helping to deliver hope to hospitality businesses up and down the country.”

UKHospitality chief executive Kate Nicholls greeted the sweeping changes as a “huge bonus”, after hospitality businesses warned that new social distancing measures could hamper revenue.

She said: “It is reassuring that the chancellor singled out hospitality and tourism as a vital part of the UK’s economy and a pillar of social life around the UK. It is also good to see that government acknowledges that our sector has been uniquely hit by this pandemic.

“This significant VAT cut, heightened ability to retain staff and incentives for consumers to eat out together amount to a huge bonus. We hope that the UK public rightly sees it as sign that we are ready to welcome them back safely. The future of many businesses and jobs depends on it.”

However, Nicholls cautioned that the hospitality industry still faces quashed business due to rent demands that have piled our over months of lockdown.

“This doesn’t mean we are out of the woods, and there are still significant challenges ahead,” she said. “The biggest of these is the spectre of rent liabilities which many businesses are still facing from their closure period… We are going to need Government support on this before too long.”

The Food and Drink Federation (FDF) welcomed the VAT cut, adding that the chancellor’s measures would help bolster the beleaguered hospitality industry.

FDF chief executive Ian Wright said: “The FDF is extremely appreciative of the unprecedented support the UK government and the devolved administrations have provided throughout this crisis.

“We hope these measures will lead to a significant boost in demand for the hundreds of manufacturers who supply into hospitality and the out of home sectors and help them to manage increased supply costs.”

Hidden costs

However, while businesses in the hospitality sector heralded the chancellor’s announcements as a lifeline, analysts warned that the sweeping changes could entail hidden costs.

Sunil Parmar, VAT director at Smith and Williamson, said the measures could result in “headaches” for retailers.

“While the VAT cut will be welcome news for many businesses hard hit by the Covid-19 pandemic, the hidden costs to today’s cut may prove to be a costly headache for some,” adding that the new VAT rate will not necessarily apply to all the transactions currently in play.

David Beadle, vice president and senior credit officer at Moody’s, added: “The measures announced by the chancellor today to boost demand in the hospitality sector are credit positive.

“However, significant challenges remain for pubs, restaurants, coffee shop chains and hotels in the months ahead, as they emerge from a period when cash burn was significant, even after factoring in the support the government provided”.

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Poppy Wood